Posted 1 year ago on Sept. 21, 2012, 1:39 p.m. EST by flip
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The next thing I want to do is talk to you about functional finance. It’s not a very interesting sounding topic. In English, the opposite of functional finance is dysfunctional finance. And that’s what, I would argue, most countries in the world deal with today. And I think the reason is because none of us that have sovereign currencies understand exactly what that means. And we act as if we face the same kinds of constraints—governments act that way—that households and businesses face. We’re told all the time that government should have sound fiscal policies, should live within its means, should exercise fiscal discipline just like a household must. But, hopefully, by now you understand that a country that operates with its own fiat currency, that is a non-convertible currency—government does not pledge to convert the currency into gold or into some other country’s currency—it doesn’t have to behave like a household. It can use its powers differently. And that’s what functional finance is all about.